Netflix’s new TV channel: a step backwards or a leap forward?

Posted by:
invenioLSI

Publish Date:
28 Jan, 2021

Netflix has surprised the world yet again by launching its own TV channel - Netflix Direct. The channel won’t be available via traditional TV, but as an online channel. Similarly, however, Netflix Direct will broadcast programmes on a linear schedule, so the same programme will run for all viewers when they log in at any specific time.

So, what is Netflix trying to achieve?

Netflix’s CEO Reed Hastings famously said that the biggest competition for Netflix is sleep. The objective is clear - get viewers to spend as much time as possible watching their content. But a new challenge has developed in recent years. As Netflix’s library has grown exponentially, the business has become a victim of its own growth and has changed consumer habits, where finishing an entire show over a weekend is now the norm.

As the demand for content multiplied, Netflix obliged by having the largest budget in the industry for creating new original shows. This, combined with the library of acquired content and more regional content, makes Netflix the owner of perhaps the largest modern content available on any online platform. The problem this creates… is the problem of choice!

Last year, a study conducted by Odeon cinemas found that the average viewer spends 187 hours each year browsing through content, on services such as Netflix or Amazon Prime. In other words, this is the time lost by viewers choosing content rather than watching it. Viewers sometimes give up altogether, after browsing for several minutes - certainly, something to worry about! But it’s a challenge Netflix is now trying to tackle.

With a linear broadcast schedule, Netflix eradicates the problem of too much choice. In a TV-like format, consumers can log in and watch whatever’s on at that time. It's no surprise Netflix first launched in France. According to its own press statement, Netflix believes French viewers prefer a ‘lean back’ experience where they don't have to choose. Depending on the success of this trial, the service could be made available globally.

But is there more behind Netflix’s strategy for launching this web channel?

Here are a few possibilities:

  • Drive interest in new shows

Most OTT platforms operate on the foundation of personalised recommendations based on viewer history. The algorithms constantly evolve, becoming even more finetuned with the use of AI. Netflix perhaps already has one of the best algorithms as such.

Nonetheless, this removes the element of serendipity in viewer choice. How many times have we stumbled on a new show on television and took a liking? The success of shows like Game of Thrones, which developed over many seasons and acquired viewers year-on-year, is a classic example. A web channel with a linear schedule means viewers will be exposed to new content which they might enjoy and decide to watch in full, using their Netflix account.

  • Advertising

Prior to the pandemic, there were some concerns about Netflix’s growth which had started to stagnate. The streaming service was losing subscribers to other platforms and the pressure to drive revenue was growing. Netflix maintains the stand to keep the platform free of advertising, but as they say… never say never. A linear channel would be the easiest way to introduce advertising on the platform. With traditional consumer habits of watching TV, acceptance will be much easier. And additional revenue certainly wouldn’t harm Netflix!

  • Live sports

Streaming live sports is no longer a novel concept. Our customer Hotstar, an on-demand streaming service, created history by attracting 25.3 million concurrent users for the IPL cricket match final in 2019. Amazon Prime experimented with this for rugby and the English Premier League football, also resulting in success. There is money to be made from live sports and a web TV channel could be a great way to tap into this resource. With the muscle power that Netflix has, it might even outbid its competitors for large sports content like NBA and NFL. We’ll have to wait and see whether there’ll be a bidding war for live sports in the future.

I'll conclude by drawing attention to a key difference between Netflix and other key OTT platform competitors - Amazon Prime and Disney+. Of these leading platforms, Netflix is the only one entirely dependent on content distribution.

Disney has a 360-degree business model, which includes revenues from merchandising, theme parks, and many other means. Disney+ is just another platform to reach more consumers, turn them into fans, and drive sales through other lines of business. Amazon Prime also combines other services with OTT content, such as 1-day delivery, music, books, and more. So, the strategy revolves around retention of customers and making them use more of Amazon’s services over competitors.

For Netflix however, content is its core business, and retention of subscribers is the driver. The business has already introduced new features like altering playback speed and the shuffle button to make the platform more user-friendly and engaging. The new channel might just be another strategy to give viewers an alternative experience and retain them, rather than losing to competition. Only time will tell.

In our experience, working with some of the world’s largest media houses, we’ve seen a huge surge in the demand for new content, as well as pressure to create original shows. This creates unique challenges in managing the content lifecycle and controlling production budgets.

Understand how you can help your organisation increase spend control and reduce inefficiencies across your production processes. Watch our on-demand webinar, jointly conducted with MESA, to learn how we helped The Star Group to drive substantial efficiencies and automate processes.

Blog Author

invenioLSI

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